State securities regulators sometimes must feel like schoolyard weaklings, constantly being picked on by the bigger guys in the political playgrounds of Washington.
State securities regulators sometimes must feel like schoolyard weaklings, constantly being picked on by the bigger guys in the political playgrounds of Washington.
But the state cops, through the North American Securities Administrators Association Inc., aren't afraid to fight back.
Jack Herstein, NASAA's president for 2012, was reached in his office in Lincoln, Neb., this month, just back from a trip warning members of Congress that they were about to “[leave] a massive hole in the investor protection safety net” by proposing rules to ease the sale of private placements.
Mr. Herstein, 61, who is assistant director of the Nebraska's securities bureau, is concerned about a bipartisan rush to expand the sale of private securities on the Internet through so-called crowd-funding sites.
“Our biggest challenge is the pre-emption issue,” Mr. Herstein said.
The House bills, for example, would prevent states from requiring or even obtaining filings from private issuers, he said.
And that's a sore spot for state regulators, who still have a hard time accepting perhaps their biggest defeat ever — the National Securities Market Improvement Act of 1996, which nationalized rules for private placements and limited states to enforcing anti-fraud laws.
NASAA did chalk up a victory with the Dodd-Frank Act's mandate to give states control of midsize advisers.
About 3,200 advisory firms of between $25 million and $100 million in assets will switch to state registration next year.
“I think we're prepared,” Mr. Herstein said, acknowledging that some states “may have some issues” in taking on the extra load.
But states are cooperating in coordinating the new influx of registrations and sharing the exam burden, he said.
Skeptics, though, wonder if the switch will truly increase the frequency of adviser exams, which under the Securities and Exchange Commission has been occurring at the rate of once every 12 and a half years.
NASAA does not support the effort to create a self-regulatory organization for advisers, a debate that will continue on well after advisers make the switch to state registration.
“The SRO is a bad model because of the conflicts of interest, and lack of transparency and accountability,” Mr. Herstein said.
The SEC is the best choice to handle adviser exams, he said, but the agency needs more funding.
NASAA also supports a common fiduciary duty for all retail advisers and brokers, but with the “duty of care as found in the [Investment Advisers Act of 1940],” he said.
On another issue, mandatory arbitration, state securities regulators want to see Wall Street and the Financial Industry Regulatory Authority Inc. let investors pursue claims in court if they want to.
Mr. Herstein gives Finra credit for allowing investor plaintiffs to use all-public arbitration panels rather than be forced to take one industry arbitrator.
“But our ultimate goal is the end of binding arbitration,” he said.
djamieson@investmentnews.com
